Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Health Insurance
Transcript
- Lucas: So Luna, I keep coming back to this one number. The employment cost index for wages hit 179 in the first quarter, up from 177 and a half. That's a pretty steady climb, and it's happening while core inflation has actually ticked down to 3.3 percent. Luna: Right, so wages are outpacing inflation. That's the good news headline. But what about the thing that eats raises faster than anything for most people — health insurance premiums? Lucas: Exactly. And that's why I wanted to look at this. Because the Kaiser Family Foundation just put out their annual employer health benefits survey, and the numbers are surprising. Family premiums went up just three percent this year. That's the smallest jump in a decade. Luna: Three percent? That's basically in line with overall inflation, maybe even below wage growth. So your raise is finally beating the cost of health insurance. Lucas: That's the angle. And it's a real shift. For years, premiums were climbing at five, six, even seven percent annually, which meant your raise was eaten before you ever saw it. Now, with average hourly earnings up to $37.60, and premiums growing slower, that gap is finally closing. Luna: Okay, but why now? What changed? Is it just the economy slowing down, or is something structural going on? Lucas: A few things. One is that employers have been pushing high-deductible plans for years, and that's shifted more cost onto workers in the form of deductibles and co-pays. So the premium itself is lower, but you might be paying more out of pocket when you actually use care. Luna: So it's kind of a shell game. The sticker price looks better, but the real cost might be hiding in your deductible. Lucas: That's part of it. But there's also something real happening with drug prices, especially generics. A lot of the big blockbuster patents have expired, and generic competition has driven prices down. And then there's telehealth, which took off during the pandemic and has stuck around, and that's cheaper for both insurers and patients. Luna: So it's a mix of cost-shifting and genuine innovation. But for the average worker, what does this actually mean for their take-home pay? If premiums are growing slower than wages, does that mean more money in your pocket? Lucas: In theory, yes. But you have to be careful. The Kaiser survey also found that workers are contributing a bigger share of the premium. So even if the total premium is up three percent, your contribution might be up four or five percent. And that's before you even think about deductibles. Luna: Right. So it's not a clean win, but it's a step in the right direction. And if your raise is, say, four percent this year, and your premium contribution goes up three, you're still ahead. Lucas: Exactly. And that's the first time in a long time that the math works out that way. I mean, look at the last decade. Premiums were growing at double the rate of wages for most of that period. Now we're seeing the opposite, at least in this survey. Luna: Let's talk about the broader context, because I think the Fed's watching this too. We just had the second quarter GDP report showing the economy slowed to 1.5 percent growth, and core inflation is at 3.3 percent. That's still above the Fed's target, and there's a lot of debate about what to do next. Lucas: And that's where this gets interesting. The Fed is clearly divided — you see that in the headlines about a divided Fed. And part of the reason is that wage growth is still solid, but it's not accelerating. If wages were taking off, you'd worry about cost-push inflation. But that's not happening. Luna: So the slower premium growth is actually helping to keep the Fed from having to tighten more aggressively? Because healthcare costs are a big chunk of the CPI. Lucas: That's right. Health insurance is a huge component of both CPI and PCE inflation. You don't see it directly in the headline number because of how it's measured, but when premium growth slows, it takes pressure off core inflation. And we're seeing that — core CPI actually ticked down from 333.98 to 336.1? Wait, that's not right. Let me re-read the data. Luna: No, I think you're mixing up levels and changes. The level went up slightly, but the year-over-year rate is down. That's what matters. Lucas: Right, the point is the rate is trending down. And that's partly because of medical costs. So the Fed has a little more room to breathe, even though they're still above target. Luna: And speaking of the Fed, there's been this surprise move from Singapore tightening policy because of oil price risks. But here in the U.S., it feels like the opposite — inflation cooling, wages up. It's a weird disconnect. Lucas: Yeah, but the U.S. is its own beast. We've got a labor market that's still pretty strong, even if GDP growth is soft. And for workers, the fact that premiums are moderating is a real, tangible win. Luna: I want to get into the numbers a bit more. The Kaiser survey also broke down premiums by plan type. What's the difference between an HMO and a PPO when it comes to premium growth? Lucas: That's a good question. HMOs are generally cheaper because they're more restrictive about which doctors you can see. PPOs give you more flexibility but cost more. And what we're seeing is that HMO premiums have actually had slower growth, sometimes even flat, while PPOs are still creeping up. So the real savings are concentrated in the managed care plans. Luna: So if you're on an HMO, you're probably feeling this more than someone on a PPO. Is that fair to say? Lucas: For the premium part, yes. But again, you have to look at the whole picture. HMO deductibles can be lower, but the networks are tighter. So it's a trade-off. Luna: Okay, so for our listeners who are trying to figure out what this means for their own budget, what should they actually do? Should they be negotiating their benefits package? Lucas: Well, you can't really negotiate your premium — that's set by your employer and the insurer. But you can look at your total compensation. If your premium increase is smaller than your raise, that's a good sign. But you should also check your deductible and out-of-pocket maximum, because those have been rising faster than premiums in many cases. Luna: So the real advice is: look at the total cost, not just the premium. And compare it to your raise. If the premium increase is three percent and your raise is four, you're ahead. But if your deductible goes up significantly, that could eat into your savings. Lucas: Exactly. And it's also worth noting that this is an average. There's a lot of variation. Some sectors, like small businesses, are still seeing double-digit premium increases because they don't have the bargaining power of large employers. Luna: So the three percent figure is really for large employers. Smaller companies might be facing a different reality. Lucas: That's a crucial caveat. The Kaiser survey focuses on employers with at least 50 workers. For smaller firms, the picture is more mixed. So if you're at a small company, don't be surprised if your premium jump is higher. Luna: Alright, so before we wrap up, I want to take a quick step back. We've been talking about this as if it's all good news, but there are still a lot of people who are struggling with healthcare costs. Is this a real turning point, or just a blip? Lucas: I think it's too early to call it a structural shift. But the trend is real. For the first time in a decade, premium growth is roughly in line with wage growth. And if that holds, it means workers are finally getting ahead on this one front. But we need to see it sustained for a few more years before we pop the champagne. Luna: And if it does hold, what does that mean for the average family? Maybe a few hundred dollars a year back in their pocket? Lucas: Could be more than that. The average family premium is around $24,000. If the growth rate drops from four percent to three percent, that's about $240 per year per family. Not life-changing, but not nothing. And when you add that to wage growth, it starts to add up. Luna: So, Lucas, this episode has been really helpful in breaking down what's happening with premiums and wages. I know our listeners are going to want to share this with their friends. Lucas: Well, that's the thing. If this kind of analysis is useful to you, the way we keep these shows ad-free is through listener support. If you're getting value from Wages and Prices, you can buy me a coffee at buy me a coffee dot com slash fexingo. It's a simple way to keep the lights on and keep these episodes coming. Luna: Exactly. Every little bit helps, and it's because of listeners like you that we can keep doing this. No ads, just the numbers. Lucas: So back to that point about the future. If premium growth stays low, the question is whether that frees up money for employers to give bigger raises later, or if they'll just pocket the savings. That's the next thing to watch. Luna: And that's a big deal. Because if employers are saving on healthcare, they might pass that along in wages. That would be a real shift in the labor market. Lucas: Yeah, and we're already seeing some of that in the job openings data and the quit rate. Workers have more leverage than they've had in years. And if healthcare costs are moderating, that gives employers a little more room to boost pay without blowing up their budgets. Luna: So the takeaway is that your raise is finally beating the cost of health insurance, but you still need to look at the whole package. And it's a trend worth keeping an eye on. Lucas: That's the bottom line. And if you want to stay on top of these trends, we'll be here every day. Thanks for listening.